29 Percent of Borrowers That Refinance Shorten Mortgage Term During Third Quarter

  29 Percent of Borrowers That Refinance Shorten Mortgage Term During Third
                                   Quarter

More Than 95 Percent Choose Fixed-Rate Loans

PR Newswire

MCLEAN, Va., Nov. 13, 2012

MCLEAN, Va., Nov. 13, 2012 /PRNewswire/ -- In the third quarter of 2012, 29
percent of borrowers that refinanced an existing mortgage chose to shorten
their loan term, based on the Freddie Mac (OTC: FMCC) Quarterly Product
Transition Report released today. Further, refinancing borrowers clearly
preferred fixed-rate loans, regardless of whether their original loan was an
adjustable-rate mortgage (ARM) or a fixed-rate.

News Facts

  oOf borrowers who refinanced during the third quarter of 2012, 29 percent
    reduced their loan term, while 68 percent of borrowers kept the same term
    as the loan that they had paid off; 3 percent chose to lengthen their loan
    term.
  oMore than 95 percent of refinancing borrowers chose a fixed-rate loan.
    Fixed-rate loans were preferred regardless what the original loan product
    had been. For example, 82 percent of borrowers who had a hybrid ARM chose
    a fixed-rate loan during the third quarter, the highest share since the
    second quarter of 2010, while the remaining 18 percent chose to refinance
    back into a hybrid ARM. 
  oThose borrowers who refinanced under the Home Affordable Refinance Program
    (HARP) were more likely to take out a long-term, fixed-rate mortgage. For
    example, 25 percent of HARP borrowers shortened their loan term when they
    refinanced during the third quarter, compared with 31 percent of borrowers
    who refinanced outside of HARP. Further, of those borrowers who were
    refinancing out of an ARM, if they refinanced under the HARP program then
    more than 95 percent chose a fixed-rate mortgage; in contrast, of
    borrowers that had an ARM but did not refinance through HARP, about
    one-half opted for another hybrid ARM.

Quotes
Attributed to Frank Nothaft, Freddie Mac vice president and chief economist

  o"Compared to a 30-year fixed-rate mortgage, the interest rate on a 15-year
    fixed was about 0.7 percentage points lower during the third quarter. For
    borrowers motivated to refinance by low fixed-rates, they could obtain
    even lower rates by shortening their term. Further, a shorter-term, fully
    amortizing loan reduces the loan balance faster and builds home equity
    sooner.
  o"Fixed mortgage rates averaged 3.55 percent for 30-year loans and 2.84
    percent for 15-year product during the third quarter in Freddie Mac's
    Primary Mortgage Market Survey^®, well below long-term averages and the
    lowest quarterly averages recorded in our survey. The Bureau of Economic
    Analysis has estimated the average coupon on single-family loans was about
    5.0 percent during the third quarter of 2012. It's no wonder we continue
    to see strong refinance activity into fixed-rate loans."

Get the latest information from Freddie Mac's Office of the Chief Economist on
Twitter:@FreddieMac

Quarterly Product Transition Information
These estimates come from a sample of properties on which Freddie Mac has
funded at least two successive loans and the latest loan is for refinance
rather than for home purchase. Some loan products, such as 1-year ARMs and
balloons, are based on a small number of transactions. During the third
quarter of 2012, the refinance share of applications averaged 82 percent in
Freddie Mac's monthly refi survey, and the ARM share of applications was 5
percent in Freddie Mac's monthly ARM survey, which includes purchase-money as
well as refinance applications.

  oQuarterly Product Transition Statistics

Freddie Mac was established by Congress in 1970 to provide liquidity,
stability and affordability to the nation's residential mortgage markets.
Freddie Mac supports communities across the nation by providing mortgage
capital to lenders. Today Freddie Mac is making home possible for one in four
homebuyers and is one of the largest sources of financing for multifamily
housing. www.FreddieMac.com.

SOURCE Freddie Mac

Website: http://www.freddiemac.com
Contact: Chad Wandler, +1-703-903-2446, Chad_Wandler@freddiemac.com
 
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